Powell Industries Inc (POWL)

The liquidity ratios of Powell Industries, Inc. provide insights into the company's ability to meet its short-term obligations. The current ratio, which measures the company's ability to pay its short-term liabilities with its short-term assets, has shown a declining trend from 2.35 in March 2022 to 1.58 in December 2023. While the current ratio is still above 1, indicating that the company has more current assets than current liabilities, the decreasing trend warrants attention.

Similarly, the quick ratio, which excludes inventory from current assets, also demonstrates a declining trend from 2.02 in March 2022 to 1.41 in December 2023. This suggests a potential weakening of the company's ability to meet its short-term obligations using its most liquid assets.

The cash ratio, which provides a more conservative measure of liquidity by considering only the most liquid current assets - cash and cash equivalents - also shows a decreasing trend, from 1.33 in March 2022 to 1.02 in December 2023. A declining cash ratio may indicate a reduced ability to cover current liabilities with the most liquid assets.

Overall, the declining trend in all three liquidity ratios raises concerns about Powell Industries' short-term liquidity position. Management may need to closely monitor its working capital management and consider strategies to improve its liquidity position to ensure it can meet its short-term obligations.

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Additional liquidity measure

The cash conversion cycle (CCC) represents the time it takes for a company to convert its investments in inventory and other resources into cash flows from sales. Powell Industries, Inc.'s CCC fluctuated over the past eight quarters.

In the last quarter of 2023, the CCC stood at 92.80 days, showing an improvement from the previous quarter's 112.64 days. This indicates a more efficient management of working capital, potentially stemming from better inventory control or quicker collection of receivables. However, the CCC in the first three quarters of the same year (2023) was relatively high, peaking at 116.61 days in June 2023, suggesting a longer cash cycle and possibly indicating delays in converting inventory to sales or slower collection of receivables.

Comparing the latest CCC with the same period in the prior year, which amounted to 112.93 days, there is a notable reduction in the cash conversion cycle. This reduction could signify improved efficiency in converting resources to cash, reflecting positively on Powell Industries' management of working capital.

In September 2022, there was a significant decrease in the CCC to 62.19 days, indicating a more efficient conversion of resources into cash and shorter cash cycles. However, this improvement was not sustained in the following quarters, as the CCC increased to 77.66 days and 64.67 days in the subsequent quarters.

Overall, the varying CCC figures suggest that Powell Industries, Inc. experienced fluctuations in its cash conversion efficiency over the analyzed period. The company may benefit from continuous monitoring of its working capital components, including inventory management and accounts receivable collection, to maintain a favorable cash conversion cycle and optimize its liquidity position.